SBEP Magazine 2018

SBEP STRATEGIC BUSINESS ECONOMICS PROGRAM

MARCH 2018

Where is the Train going? page 2 4 The Effects of the Tax Reform for Acceleration and Inclusion (TRAIN) Law Now on its 44th year, the

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11 16 24 27

DOF's Train-2 Heads for Lower Corporate Taxes

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Editor-in-Chief

Victor A. Abola, Ph.D.

Editorial Assistant

Alonica R. Salazar

Contributors

Leandro Tomas David D.L. Tan Gilbert A. Recto

artwork by jimmy hilario

Contents

Editorial Victor A. Abola, Ph.D.

Where is the Train going?

M

iddle-income taxpayers welcomed the year 2018 with a big smile after seeing pay checks significantly higher due to the tax cuts effected by the Duterte administration’s Tax Reform for Acceleration and Inclusion (TRAIN) Package 1. This got approved into R.A. 10963 last December 2017.

The law marked a big step in the current’s administration efforts to further boost economic growth to 7%-8% in 2018-2022 especially through even higher infrastructure spending from its “Build, Build, Build” program.

TRAIN is not just about tax cuts, but about deeper tax reforms. It aims not only to generate revenues, with new tax and administrative measures, but also push inclusive growth and lower the poverty rate to 14% by 2022 from 21% in 2015. Three other packages will follow TRAIN-1. Leandro D.L. Tan discusses the effects of TRAIN-1, while Victor A. Abola lays out the features of TRAIN-2, in the two feature articles of this magazine.

The sweetener for TRAIN-1 was the tax cuts afforded especially middle-income households. Indeed, “all compensation income taxpayers up to P1 million annual gross income (excluding 13th month pay, pension and unions, etc.) will enjoy tax savings that is roughly equivalent to one month’s take home pay. In addition, lower tax rates set for 2023 will boost tax savings further by about 2-4% for all taxpayers.” That should continue to further solidify consumer spending as an important contributor to growth, even though TRAIN, as Tan points out, clearly wants the faster growth to be investment-driven.

The self-employed will enjoy benefits, even though TRAIN strives to bring more of them into the tax net.

“For taxpayers who are self-employed and professionals, a flat tax of 8% on gross sales or receipts (GSR) above P250k has been introduced as a new option in lieu of graduated income tax rates and 3% percentage tax for GSR up to P3M. This option works for GSR above P436k – below which the default compensation income tax presents a lower tax rate. For income 2

above the P3M threshold, the compensation income tax schedule and 12% VAT remain applicable as well as the itemized deduction or the 40% optional standard deduction.”

“The 8% GSR tax rate essentially lowers the effective tax rates from 38% to about 12% at the P3M threshold.” Above that, effective tax rates rise rapidly, much closer to, but still lower than previous levels of 40-42%. “The potential tax savings are substantial up to the VAT threshold – up to P500k or 25% of GSR. Beyond this, tax savings sharply decline (e.g.

P100k or 3-4% of GSR at P4M) which may make the threshold a major sticky point for tax declarations. The lower tax rates during the second round of adjustments in 2023 results in higher nominal tax savings (e.g. back up to P450k at P15M) although smaller in percentage terms (e.g. up to 5% at P15M).”

What about people who earn minimum wage (already exempt at present) or lower, since they won’t have any taxes to save? They would have to pay for higher prices of goods that would be subjected to new or higher excise taxes, and removal of some VAT exemptions.

For this group (or the lowest 40% of households in terms of income), TRAIN shall provide a monthly subsidy of P200.00 in 2018, rising to P300.00 in 2019 and 2020. Thereafter, the subsidies end as DOF expects those affected families to have a job (or an additional family member with a job). Concretely, DOF estimates that a minimum wage earner would have a positive P1,305.80/year after the subsidy is considered and after higher taxes/inflation would have occurred.

So, what are the new taxes or higher ones?

Primarily, these refer to indirect taxes, which are usually paid by firms but passed on to the final consumer. An example is the 5% to 10% new excise tax on sugar-sweetened beverages as well as a 5% excise tax on cosmetic surgeries, aesthetic procedures and body enhancements.

Lotto and PCSO winnings will now be subject to income tax.

The higher excise taxes on petroleum products, however, will provide the largest boost

THE FAST TRAIN TO INCLUSIVE GROWTH

to inflation. By following its proposed increases of P3-2-1 (for 2018-2020) per liter (except for diesel which goes from 0 to P2.50, P4.50 and P6.00 per liter), the higher taxes would generate additional inflation of around 0.6% in 2018, 0.4% in 2019, and 0.3% by 2020, as estimated

by UA&P economists Abola-Tan-Balbieran.

This does include possible (already in place) higher crude oil prices in 2018, which the US Department of Energy estimates to rise by an average of around 15%, an upgrade from their original 5% projection.

Other indirect taxes with higher rates include: (a) 0.125% additional tax on stock transactions in listed shares; (b) doubling of documentary stamp tax (which impact largely on the financial sector); (c) increased excise taxes on automobiles; (d) increased excise taxes on coal, mining and tobacco products. As for higher special income taxes, we now have (e) a 15% tax on interest income on foreign currency deposits, from 7.5%; (f) 15% capital gain tax (from 6%) on the sale of shares of non-listed companies.

TRAIN-1 also expects additional revenues from the repeal of 54 out of 61 special laws granting VAT exemptions (also, to make the VAT system fairer). It also repealed the alternative final income tax of 15% on alien individuals and qualified Filipinos employed in Regional HQ, Regional Operating HQ, offshore banking units and petroleum service (sub)contractors.

How does this all add up in terms of revenues to fund higher infrastructure spending? Net revenues for 2018 only amount to P30.4B, while for 2019, DOF estimates P41.9B. The latter, however, relies much on the passage of TRAIN-1B, which focuses on gains from relaxation of the bank secrecy law, general amnesty, and fuel marking. TRAIN-2 is essentially revenue-neutral and Abola discusses some of its key details. The total net revenues of P72.3B for 2018-19 constitutes only some 7.2% of the P1Tr needed to cover the infrastructure spending gap. The national government. will have to look for more ways to improve tax collection efficiency, other affluent consumption taxes, and more foreign grants to close that gap. Besides, DOF should put a lot of effort in getting more taxpayers to file and pay taxes electronically, complete the BIR/BOC computerization, put in place merit-based system of advancement within the tax collection agencies, etc. In the end, all of us must put our patriotism to work by being tax compliant and getting others to do the same.

(L) Victor A. Abola, Ph.D., Program Director; (seated in front, L-R) Alonica R. Salazar, Marketing & Alumni Affairs Manager; Lea T. Riñon, Marketing & Alumni Affairs Coordinator; (standing L-R) Ledinia G. Coates, Executive Assistant; Wilrose M. Gorumba, Program Officer; Marigien C. Nerona, Program Officer; and Viory T. Janeo, Academic Coordinator.

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Cover Story

The Effects of the Tax Reform for Acceleration and Inclusion (TRAIN) Law* Mr. Leandro Tomas David D.L. Tan Consultant on Monitoring and Evaluation, Department of Finance US Agency for International Development

Introduction. The passage of the TRAIN Act into law last December 2017 is arguably the Duterte administration’s most important legislative victory to date. It directly fulfills the second goal of the government’s 10-point agenda—the institution of progressive tax reform and more effective tax collection—and indirectly helps realize three other socio-economic goals (Figure 1). The higher tax revenue is expected to fund the countryside’s investment needs for rural and urban infrastructure with the provision of road access to over 7,800 isolated barangays, the irrigation of 1.3 million hectares for agriculture and the concretization of over 44,000 kilometers of roads to help raise agricultural productivity and rural tourism—all of which are in line with the rural development focus of the fifth goal.

The funds from TRAIN will also enable the national government to hire over 180,000 teachers and 180,000 health professionals, the construction of 113,000 new classrooms, the establishment of 25 new hospitals to help attain 100% enrollment and completion rates and the 100% coverage of PhilHealth services under priority programs in education, health and social protection referring to the seventh goal oriented towards human capital development. All in all, the proceeds from TRAIN will accelerate annual infrastructure spending to reach the 5% of GDP target of the fourth goal from the current 4.5% of GDP in 2017.

Investment-Led Growth. The fourth goal is very much achievable in 2018. According to Budget Secretary Benjamin Diokno, infrastructure spending for the year is pegged at P1.06 trillion, which is 24.5% higher than in 2017 and is equivalent to 6.1% of GDP with further plans for annual infrastructure spending to reach as much as 7.3 percent of GDP in 2022.1 This trend is in line with the country’s economic goal of achieving a real GDP growth of 7 to 10 percent that is made more sustainable with the 1 During his presentation of the Duterte administration’s economic plan at the US-Philippines Society Economic Policy Forum, held last February 20, at the Manila Peninsula Hotel in Makati. https://www.dbm.gov.ph/ index.php/secretary-s-corner/press-releases/list-of-press-releases/672dbm-secretary-diokno-highlights-country-s-economic-blueprint-in-usphilippines-society-economic-policy-forum

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THE FAST TRAIN TO INCLUSIVE GROWTH

Figure 1: DUTERTE ADMINISTRATION 10-POINT SOCIO-ECONOMIC AGENDA 1. Continue and maintain current macroeconomic policies, including fiscal, monetary, and trade policies.

2. Institute progressive tax reform and more effective tax collection, indexing taxes to inflation.

3. Increase competitiveness and the ease of doing business.

This effort will draw upon successful models used to attract business to local cities (e.g., Davao) and pursue the relaxation of the Constitutional restrictions on foreign ownership, except as regards land ownership, in order to attract foreign direct investment.

4. Accelerate annual infrastructure spending to account for 5% of GDP, with Public-Private Partnerships playing a key role.

5. Promote rural and value chain development toward increasing agricultural and rural enterprise productivity and rural tourism.

6. Ensure security of land tenure to encourage investments, and address bottlenecks in land management and titling agencies.

7. Invest in human capital development, including health and education systems, and match skills and training to meet the demand of businesses and the private sector.

8. Promote science, technology, and the creative arts to enhance innovation and creative capacity towards self-sustaining, inclusive development.

9. Improve social protection programs, including the government’s Conditional Cash Transfer program, to protect the poor against instability and economic shocks.

10. Strengthen implementation of the Responsible Parenthood and Reproductive Health Law to enable especially poor couples to make informed choices on financial and family planning.

*This article condenses the plans and assumptions of the national government surrounding the TRAIN law as stated in multiple references and materials from the Department of Finance. It does not cover all of the taxes reformed under TRAIN but is focused on income taxes regarding compensation and self-employed as well as excise taxes on petroleum and automobiles due to time and space constraints.

Cover Story Figure 2: Investment-Led Growth

Source: PSA, Author’s example

Figure 3: Public Investment-Led Growth Requirements Investment Category

2016

2018e

2022 target

Infrastructure

P759 billion

P1.1 trillion

P1.8 trillion

Education and training

P551 billion

P790 billion

P1.3 trillion

Health

P133 billion

P179 billion

P272 billion

Social protection, welfare and employment

P242 billion

P331 billion

P509 billion

Indicative Total

P1.7 trillion

P2.4 trillion

P3.9 trillion

Php Bil

% Share

% of GDP

366

22%

2.3

433 208 478 188 1,673

26% 12% 29% 11% 100%

2.7 1.3 3.0 1.2 10.0

Source: DOF, Author’s estimate

Sources of Funds for Investment Deficit Tax policy reform Tax administration Customs administration Borrowing 100% Spending efficiency Total Source: DOF

focus of shifting the source of economic growth from consumption to investment.

Macroeconomic simulations show that this requires a 16 to 22 percent annual rise in nominal investments up to 2022 to compensate for negative net exports that will raise the share of investments to GDP from the current 23 percent to over 34 percent (Figure 2).

The required contribution from government based on DOF projections amounts to about P2.4 trillion in new investments for 2018 of which P1.1 trillion is for physical infrastructure— which is covered in the above-mentioned statement of Budget Secretary Diokno— while the remaining P1.3 trillion is for human capital investments in education and training, health as well as social

protection, welfare and employment based on government projections (Figure 3).

According to the government, the funds for this planned surge in public investment are from multiple sources —paramount of which is tax policy reform as started in the new TRAIN law.

Additional funding sources include new borrowings, budget reforms to improve the pace, efficiency and transparency of fiscal spending, and improvements in tax administration within BIR and BOC. In this case, tax policy reform seeked to create a simpler, fairer and more efficient tax system characterized by low tax rates and a broad base that can promote investment, job creation and poverty reduction. The process was started with the TRAIN Law which lowered personal income tax (PIT)

rates and, to fill up the consequent revenue loss, raised excise taxes on certain products (such as petroleum, sugar-based beverages and motor vehicles) and broadening the Value Added Tax (VAT) base.

Lowering personal income taxes. The PIT system under TRAIN seeks to correct the current tax system’s inequity by reducing the income tax burden on the poor and middle class, and making the rich pay more taxes. The updating of existing individual income tax brackets is necessary to reduce the effects of higher real tax rates on rising nominal incomes from “bracket creep.” This case arises when inflation pushes nominal incomes into higher tax brackets where higher taxes reduce purchasing power. For example, the taxpayer who had an annual taxable income of P100,000 in 1997 when the preTRAIN tax brackets were first introduced under the Comprehensive Tax Reform Act of 1997 would normally require an income of P241,935 in 2017 to maintain the same standard of living after factoring in the 142% rise in inflation since 1997.

However, the higher income at the higher tax bracket is imposed an additional tax rate of 5.3% on top of the past tax rate of 14.5% which effectively reduces real income below 1997 levels.

To address the problem of bracket creep, TRAIN made significant updates to the compensation income tax schedule.

The bottom five brackets with annual taxable incomes up to P250k were aggregated into the single bottom bracket which is now tax-exempt (Figure 4). This extends the tax-exempt status to nearly 4.7 million taxpayers2 which constitutes 83% of all taxpayers according to the DOF – thereby shifting the compensation income tax burden squarely on the remaining 17% of taxpayers—contrary to the goal of broadening the tax base to improve vertical equity across income brackets. The top tax bracket with a marginal tax rate of 32% in the previous tax schedule for taxable incomes above P500k was expanded to 4 brackets including a new top bracket with a 35% marginal tax rate for incomes over P8M. The new tax rates are effectively lower for all income levels except for the richest 1% of taxpayers with taxable incomes 2 Including 1.7 million minimum wage workers with annual incomes of up to P184,832 according to DOF who were granted this status in the previous tax regime.

SBEP MAGAZINE 2018

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Cover Story above P12M to maintain progressivity in the tax system (Figure 5). Under TRAIN, a further reduction in tax rates is set in 2023.

The net tax gains of existing taxpayers are partially offset with the scrapping of personal exemptions, deductions on health insurance premiums and on dependents as well as the increase in the 13th month and other bonus threshold from the current P82k to P90k. The significance of the latter is evident in Figure 6 which shows that the potential tax savings from TRAIN is reduced from 13% of gross incomes for middle income earners with no dependents to only 5% of gross incomes for families with up to 4 dependents.

The tax savings rates decline but remain positive until incomes rise above seven figures. In a nutshell, all taxpayers up to P1M in compensation income will enjoy tax savings that is roughly equivalent to one month’s take home pay. The lower tax rates set in 2023 will boost tax savings further by about 2-4% for all taxpayers. In nominal terms, this translates to tax savings of up to P70k for taxpayers with P5M in income and 4 dependents in 2018, and up to P100k for the same taxpayers in 2023.

The tax savings are higher for taxpayers with zero dependents: up to P100k for those with incomes worth P2-8M in 2018 and up to P400k for incomes worth P910M in 2023 (Figure 7).

For taxpayers who are self-employed and professionals, a flat tax of 8% on gross sales or receipts (GSR) above P250k has been introduced as a new option in lieu of graduated income tax rates and 3% percentage tax for GSR up to P3M. This option works for GSR above P436k – below of which the default compensation income tax (CIT) presents a lower tax rate.

For income above the P3M threshold, the CIT schedule and 12% VAT remain applicable as well as the itemized deduction or the 40% optional standard deduction.

The 8% GSR tax rate essentially lowers the effective tax rates from 38% to about 12% at the P3M threshold—above of which presents a rapid rise in effective tax rates much closer to but still lower than previous levels of 40-42%. The potential tax savings are substantial up to the VAT threshold— up to P500k or 25% of GSR. Beyond this, tax savings sharply decline (e.g. P100k or 3-4% of GSR at P4M) which may make the threshold a major sticky point for tax

Figure 4: Compensation Income Tax Rates Tax Regime

Annual Taxable Income

Tax Rate

Tax Rate at Upper Limit

% of Taxpayers

Existing

Up to 10k Over 10k - 30k Over 30k - 70k Over 70k - 140k Over 140k - 250k Over 250k - 500k Over 500k

5% 500 + 10% of excess over 10k 2.5k + 15% of excess over 30k 8.5k + 20% of excess over 70k 22.5k + 25% of excess over 140k 50k + 30% of excess over 250k 125k + 32% of excess over 500k

5.0% 8.3% 12.1% 16.1% 20.0% 25.0% 28.5%

TRAIN 2018-22

0 - 250k

0

0.0%

83%

Over 250k - 400k Over 400k - 800k Over 800k - 2M Over 2M - 8M Over 8M

+ 20% of excess over 250k 30k + 25% of excess over 400k 130k + 30% of excess over 800k 490k + 32% of excess over 2M 2.41M + 35% of excess over 8M

7.5% 16.3% 24.5% 30.1% 31.1%*

8% 6% 2% 1% 0.1%

0 - 250k

0

0.0%

5.6% 12.8% 20.1% 27.5% 29.0%*

TRAIN 2023

Over 250k - 400k Over 400k - 800k Over 800k - 2M Over 2M - 8M Over 8M *Based on a taxable income of P15M Source: RA 10963, DOF

+15% of excess over 250k 22.5k + 20% of excess over 400k 102.5k + 25% of excess over 800k 402.5k + 30% of excess over 2M 2.2025M + 35% of excess over 8M

Figure 5: Compensation Income Tax Regimes

Figure 6: Compensation Income Tax Savings As Percent of Gross Income

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Cover Story declarations. The lower tax rates during the second round of adjustments in 2023 results in higher nominal tax savings (e.g. back up to P450k at P15M) although smaller in percentage terms (e.g. up to 5% at P15M).

The total tax savings to existing PIT taxpayers should also be considered as foregone tax revenue which amounts to P146.6B in 2018 and totals up to P894.2B in next 5 years according to DOF estimates.

Simplified and lowered estate and donor’s taxes. The estate tax was lowered from a range of 5% to 32% to a single rate 6% for net estate with a standard deduction of Php5M to simplify the system as well as exemption for the first Php10M for the family home.

The donor’s tax was lowered from 2% to 15% if related or 30% if not related to a single tax rate of 6% on net donations above P250k per year.

Higher excise taxes on petroleum products. TRAIN called for the staggered increase of excise taxes on all petroleum products between 2018 and 2020 to update the current rates that have been unadjusted since 1997 even as inflation has more than doubled since that time. The tax increases are most consistent with the notion that oil taxes tend to be highly progressive since those who consume more will pay more tax compared to those who consume less. The local fuel consumption of the top 1% of households is just about the same as the poorest 50% of households based on DOF estimates.

The eventual price increases of petroleum products are higher than the increase in nominal excise tax rates due to the compounding effect of the 12% VAT on both the importation and local costs of such products on top of the excise tax.

In turn, higher costs of fuel translate to higher producer prices across economic sectors which directly or indirectly utilize petroleum products in their production —the most affected of which are related to transport services. Consequently, higher producer prices lead to higher inflation which according to estimates will be around 1 percent across the three-year period up to 2020. This is not high in itself but maybe significant in the near term as the estimated +0.6 percent effect on inflation in 2018 on top of the current inflation of 3.3 percent up to the final quarter of 2017 brings the total ever much closer to the top of the BSP’s inflation target of 2-4 percent. The

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Figure 7: Compensation Income Tax Savings

resulting effects on transport fares is also not high—about Php1.00 for PUJs and PUBs. But there is the risk that the oil price hikes might be used by unscrupulous producers and retailers as an excuse to raise prices beyond actual cost increases (i.e. selffulfilling behavior on price expectations).

This excludes other cost pressures from foreign exchange and global oil prices among others.3

Updating of excise tax on automobiles. The rationale for the auto excise hike are multiple—to update tax rates that have remained unchanged since 2004 for the relatively rich who can buy cars and possibly lead to a downward shifting of demand from expensive to cheaper cars which have a tendency to be more fuel efficient plus the taxes are geared for road infrastructure—thereby also helping address pollution and congestion. Surprisingly, not all tax rates for cars were raised higher as the cars with landed cost between P1.7M and P4M are now taxed lower under TRAIN. This may be unfortunate to those new car buyers who pre-empted the passage of TRAIN last December 2017 based on the much higher taxes across the board in the earlier versions of TRAIN during deliberations in the House of Representatives and in the Senate. Pick-up trucks—which are considered used for commercial purposes—and purely electric vehicles are tax exempt; while hybrid cars are taxed at half the rate of equivalent cars.

3

The year-on-year headline inflation for January reached 4.0 percent – which is the high end of the Government’s target range of 3.0 percent ± 1.0 percentage point for 2018. This was traced mainly to higher prices of food and non-alcoholic beverages, alcoholic beverages and tobacco items, and domestic petroleum products – which were all targeted by higher taxes under TRAIN.

THE FAST TRAIN TO INCLUSIVE GROWTH

Interestingly, the change in car prices in January 2018 does not fully reflect the new excise taxes imposed by TRAIN. The reported prices of some cars such as the Toyota Vios and Hilux actually fell— contrary to the higher taxes for these vehicles. Cars such as the Toyota Prado and LC200 were priced lower although not in scale to the decrease in applicable taxes.

The price of the Ford Expedition was 19% higher than 2017 prices that were adjusted lower for TRAIN just like the prices the Alphard, Explorer and Mustang which were also priced higher despite lower taxes.

The majority of cars appear to be priced higher than the expected increases from higher taxes such as the 10-15% difference in the case of the Yaris. The diversity of these findings is however not unexpected as changes in car prices may also be determined by other changes apart from tax rates such as foreign exchange rates, profit margins, features, equipment and/or accessories.

New tax revenue sources from changes in other major taxes. TRAIN also created new sources of government revenue from changes in other major taxes. TRAIN repealed 54 out of 61 special laws granting VAT exemptions to make the VAT system fairer.

Also repealed were the alternative final income tax of 15% on alien individuals and qualified Filipinos employed in Regional HQ, Regional Operating HQ, offshore banking units and petroleum service (sub) contractors.

New excise taxes were introduced on sugar sweetened beverages, Lotto / PCSO winnings, cosmetic surgeries, aesthetic procedures and body enhancements.

Existing excise taxes were increased for coal, mining, tobacco and indigenous petroleum.

Taxes on financial transactions were also raised including the documentary stamp

Cover Story Figure 8: Fiscal Impact of TRAIN Tax Revenue Sources / Measures Tax Policy Reform Personal Income Tax Estate & donor tax PCSO Corporate Income Tax & Winnings VAT Excise on Petroleum Products Excise on Automobiles Sugar sweetened beverage tax Motor vehicle user’s charge General tax amnesty Tax administration measures Mandatory fuel marking Relaxation of bank secrecy laws CUMULATIVE TOTAL for 2018 For Infrastructure For Social Safeguards Cost of Social Safeguards for 2018 Transfers +10.5% admin cost PUV Modernization Pantawid Pasada NET For Infrastructure

tax, taxes on interest income from foreign currency deposits, on capital gains of nontraded stock, and on stock transactions.

Impact of TRAIN on Taxpayers. In summary, the various changes in the different types of taxes will affect the typical taxpayer in various ways.

Tax savings are expected from the decrease in taxes on personal income, estate and donors. In contrast, new and/or higher tax rates on oil, autos, sugar sweetened beverages, tobacco, and financial transactions as well as the removal of VAT exemptions will increase taxes, raise prices and general inflation. The net effect will expectedly be negative for low income workers especially those who are not paying any income tax to benefit from personal income tax savings anyway. To address this, the government will provide targeted cash transfers (TCT)4 to the poorest 50% of households which will offset the increase in the costs of living attributable to TRAIN. This is the case of minimum wage workers 4 TCTs consist of monthly payments of P200 in 2018 and P300 in 2019 and 2020. The challenges in the implementation of the TCT targeting the projected 10 million households in 2018 cannot be overstated – especially when the 4Ps conditional cash transfer program of DSWD currently only has about 4.4 million household beneficiaries.

(in Php Bil) TRAIN + TRAIN 1A 1B 30.4 69.9 -146.6 -3.8

12.5 39.2

60.2

14.4

54.5

12.9

26.6 0 23.8 30.4

23.8 93.7 65.6 28.1 51.8 26.5 17.3 8.0 41.9

Remarks Only 19% of P366B long-term target of DOF

Only 5% of P366B long term target of DOF P20B but operational in 2019

Only 11% of P800B long-term target of DOF = 70% = 30% Higher than funds generated for social safeguards P200 x 12 months for 10 million households

=0.24% of GDP which is less than 1.4% of GDP funding gap for P1T infrastructure budget

who do not enjoy any tax savings from TRAIN, and thus stands to lose P1,094 per year from higher taxes without the TCT but will gain P1,305 with TCT. In contrast, middle-income workers enjoy tax savings that are greater than the negative tax effects even if without TCT. For high income earners with gross incomes above P13M, the higher income tax rates in addition to the other higher tax effects including from the higher excise on the highest-priced cars will require higher tax payments amounting to at least P250k.

Fiscal impact of TRAIN. As summarized in Figure 8, the tax revenues from package 1A of TRAIN will amount to only P30B without the P20B from fuel marking after plans to implement the fuel marking scheme have been pushed back to next year with the delay in the bidding out of supply contracts for the anti-smuggling measure. The shortfall only makes the immediate passage of package 1B all the more crucial. Additional tax measures such as the upward adjustments in the motor vehicles user’s charge (also called the road users tax), the granting of a general tax amnesty and the relaxation of bank secrecy laws are expected to raise the total tax take of TRAIN in 2018 to P94B – of which 30% or P28B are earmarked for social safeguards including the TCT.

The amount only covers the P26.5B cost of TCT for the year and not the PUV modernization nor the Pantawid Pasada program which together costs about P25B. Even with package 1B, the remaining P42B for infrastructure is still short of the P276B revenue gap of about 1.6% of GDP to fund the P1T budget for infrastructure. This puts added pressure on planned improvements in customs administration and spending efficiency within the year to translate to P233B in tax efficiency gains to keep the national government deficit within the government target of 3% of GDP. REFERENCES Department of Budget and Management.

Budget of Expenditures and Sources of Funds 2017.

Department of Finance. Tax Reform for Acceleration and Inclusion: Key Provisions and Fiscal Impact. 25 January 2018.

Department of Finance. Tax Reform for Acceleration and Inclusion: Package 1A. 11 February 2018.

Department of Finance. Tax Reform for Acceleration and Inclusion Revised Package 1. Presentation to Congress on 21 January 2017.

Republic Act 10963: The Tax Reform for Acceleration and Inclusion. 19 December 2018.

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THE FAST TRAIN TO INCLUSIVE GROWTH

Special Feature

Dof's TRAIN 2 Heads for Lower Corporate Taxes Victor A. Abola, Ph.D. Assistant Professor & Senior Economist School of Economics, UA&P

W

ith its success in getting its Tax Reform for Acceleration and Inclusive Growth (TRAIN) Package 1 approved last December 2017 (R.A.10963) with minor concessions to legislators, the Department of Finance (DOF) has submitted to the Congress TRAIN Package 2. It hopes to put this into law in 2018, with likely effectivity by the start of 2019.

This article details TRAIN-2 proposals and the rationale thereof. However, even before or simultaneous with TRAIN-2, the DOF is also pushing TRAIN-1B. The latter consists of administrative items that were originally in TRAIN-1 but were later ditched to get the approval for the essential aspects of the tax reform bill. TRAIN-1B primarily consists of (1) Easing of Bank Secrecy Law, and (2) General Amnesty covering all taxes.

Main Aim: Lower Corporate Tax Rates

The overarching goal of TRAIN-2 is to lower corporate tax rates, which are the highest in ASEAN. This is a disincentive for foreign and domestic investment. The situation may be seen in the succeeding graph. Note that the graphs and figures have been obtained from the presentations in various fora.

It is not only that our corporate tax rates are high; they are collected inefficiently. In Table 1, we see efficiency measured in terms of the corporate tax rate as a % of GDP divided by the corporate tax rate. There, it is evident that the Philippines’ efficiency in collecting corporate taxes falls among the bottom.

The specific goal of DOF’s TRAIN-2 is to reduce the corporate income tax rate (CIT) rate from 30% to 25% by 2022, while expanding the tax base. However, since DOF seeks the proposal to be revenue neutral, it offsets it against collection

of some revenue losses due to fiscal incentives from a multitude of laws. Thus, its proposed CIT rate reduction is tied to savings from reduced fiscal incentives. Specifically, DOF proposes, beginning Jan 1, 2020, to reduce the CIT rate by 1 percentage point for every 0.15 percent of GDP (or PhP 26 billion in 2018) reduction of investment tax incentives two years previous. This condition seems easily achievable considering that the DOF estimates that the foregone revenues (excluding local business taxes) in 2015 reached P301B. Improving Compliance for Corporate Tax In addition to the lowering of CIT rate, the DOF proposes some measures to improve compliance. The key items include: • •

Tightening anti-avoidance rules, esp. transfer pricing Reducing the Optional Standard Deduction (OSD)

[continued on page 13] SBEP MAGAZINE 2018

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Special Feature CIT Headline Revenue Country Year Revenues CIT Rates Productivity (% of GDP) (%) (%) Thailand 2012 6.1 20 31 Vietnam 2012 7.3 25 29 Malaysia 2015 6.5 24 27 Singapore 2012 3.5 17 21 China 2012 3.5 25 14 Philippines 2015 3.7 30 12 Indonesia 2012 2.7 25 11 Laos 2012 2.4 28 9 Cambodia 2012 1.3 20 7 Revenue productivity is calculated as the ratio of tax revenue as a share of GDP divided by tax rate.

Source: OECD iLibrary. IMF Fiscal Monitor database, World Bank, PWC

•

• •

from 40 to 20% of gross income Expanding definition of large taxpayer: should be conglomerate basis Defining medium taxpayer Allowing BIR to prosecute tax cases

Rationalizing Fiscal Incentives The effort to rationalize fiscal incentives has been a prolonged battle waged by the DOF for more than two decades.

The incentives hydra has spawned the following: • • •

analysis can be done periodically.

Specific Measures for Rationalization Of course, the bill does not only make the principles more explicit; it provides specific measures to achieve that goal.

These include the following: •

112 investment laws that grant incentives and/or exemptions 192 non-investment laws that grant tax incentives 14 NG agencies that oversee these incentives

Obviously, this has meant “picking winners”, which goes against common sense when there are so many (failed, as well) “winners.”

In short, DOF wants these incentives given on the basis of key principles, such as: (1) performance-based (e.g., in terms of employment, exports, etc.), (2) targeted – small number and truly critical to development, (3) time-bound – sunset provisions, as some firms have enjoyed more than 2 decades of incentives, and (4) transparent – the foregone revenue must be quantified regularly so that cost-benefit

• •

One single menu of incentives applicable to all Investment Priority Areas (IPAs). This will entail the repeal – Income tax holiday – A 15% corporate income tax based on net taxable income to replace the 5% gross income tax in lieu of all taxes – No more VAT incentives: All firms to pay VAT and prove they export to be able to get a refund (incl., building ecozones for BPOs) – No more local tax incentives by NG – Other income-based incentives remain, e.g., investment tax allowance, double deduction for research and development & exemption from customs duty No double registration of activities Only new investment/activities (excl. expansions) shall be

•

•

• •

•

•

granted income tax incentives Existing income tax holiday to be given maximum of 5 years transition Expansions: only exemption from customs duty of capital equipment Better definition of exporter Domestic firms allowed if in the strategic investments priority plan One-year relocation incentive for firms moving out of MegaManila Better incentives for lagging regions, conflict and calamitystricken regions

In order to harmonize incentives and broaden the tax base, the bill proposes to repeal 123 special laws on investment tax incentives and consolidate into a SINGLE OMNIBUS INCENTIVES LAW. It will also repeal NIRC exemptions of GOCCs, proprietary educational institutions and hospitals, RHQs, ROHQs, etc.

There shall be a single approving body—the Financial Incentives Review Board (FIRB)—with expanded powers.

DOF will chair this body of 5 members and DOF will have veto powers, cancelation powers, etc. and will cochair existing IPAs. NEDA shall also be a member in all 14 IPAs noted earlier.

No Walk in the Park The bill should have wide support, since all corporations want lower income taxes.

But unlike TRAIN-1, this proposed legislation will not be a walk in the park.

There are so many special privileges to be removed. However, that’s where the tough President Duterte can come in and somehow smoothen the terrain.

The passage of TRAIN-2, especially the removal of diverse types of incentives/ exemptions and standardizing them, will truly be a feather in the cap of President Duterte and his economic team, led by DOF Secretary Carlos G. Dominguez III. SBEP MAGAZINE 2018

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With almost a quarter of its student population receiving scholarship grants, the University of Asia & the Pacific is doing its part in providing high quality education to the Filipino youth regardless of the circumstances they face. Partnering with UA&P in this endeavor is an investment in our country’s future. Join us in giving students from all walks of life the opportunity to rise above their constraints and meet their fullest potential.

Give the gift that lasts. Help tomorrow’s leaders get started on their dreams.

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THE FAST TRAIN TO INCLUSIVE GROWTH

CONTACT US Development Office 2nd floor ALB University of Asia and the Pacific Pearl Drive, Ortigas Center, Pasig City Landline: +632 637.0912 local 262 Mobile: +63 917.821.8784 Fax: +632 631.2174 E-mail: development.office@uap.asia

SBEP MAGAZINE 2018

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SBEP Class 2017

ALABASTRO, Leonila C. “Nila” AVP – Treasury D.M. Consunji, Inc.

BERNARDO, Milan Rochelle N. “Milan” Manager – Human Resource Department Public Safety Mutual Benefit Fund, Inc.

Vice President and Head – Human Resources & Administration GT Capital Holdings, Inc.

CASAS, Jose Ricardo C. “Pepi”

ALCANTARA, Marcelina S. “Marcy” Assistant Regional Director Department of Trade and Industry (IV-A)

General Manager Crankmaster Trading

BASILIO, Rosenni A. “Senni”

CASTRO, Imelda Ronnie G. “Emy”

Vice President & Head, Strategic Planning & Organizational Dept.

A. Magsaysay, Inc.

BERBA, Gilbert Enrique M. “Gilbert” Head of Operations, Urban and Regional Planning & Central Land Acquisition Ayala Land, Inc.

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CORNELIO, Susan E. “Tantan”

THE FAST TRAIN TO INCLUSIVE GROWTH

Partner Isla Lipana & Co.

CASTRO, Noel Joseph B. “Noel” National Sales Manager Nutri-Asia, Inc.

CRUZADA, Daniel D. “Danny”

Head of Construction Operations–Division 2 Makati Development Corporation

CRUZADO, Eduardo C. Jr. “Poj” Assistant Vice President Ayala Land, Inc.

DAVID, Renan M. “Renan”

AVP – Strategic Initiatives and Learning Manulife Business Processing Services

SBEP Class 2017

DIAGO, Arturo B. Jr. “Bingle” Chief Operating Officer Directories Philippines Corporation

GACULA, Joffrey B. “Joff”

GARCIA, Justin Michael R. “Justin” Head – Corporate Projects Division Central Project Office National Grip Corp. of the Philippines

HAN, Hyon Suk “Celine”

Assistant Vice President - Operations D.M. Consunji, Inc.

Math Teacher Gwang Pyeong Middle School, Korea

GARCIA, Augusto C. “Gusty”

IRA, Louella P. “Bam”

President Pekinco Food Enterprise

Head – Legal Services Division Bank of Commerce

GARCIA, Iñigo P. “Iñigo”

LOPEZ, Judith V. “Judith”

Head of Finance, Facilities and Administration Manulife Data Services, Inc.

Independent Director Philippine Veterans Bank

MACOB, Agnes R. “Agnes”

Manager and Head, Competitive Market Group Meralco

MENDOZA, Glenn N. “Glenn” Vice President SEAOIL Philippines, Inc.

PACHECO, Mary Jean T. “Jeannie” Director – Competitiveness Bureau Department of Trade and Industry

PALACIOS, Jose Paolo P. “Paolo” Asst. Vice President, Corporate Banking Union Bank of the Philippines

SBEP MAGAZINE 2018

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SBEP Class 2017

QUILAT, Maxwell C. “Max”

SAHAGUN, Jefrie R. “Jef”

REALON, Henry R. “Henry”

SALIPSIP, Darwin L. “Darwin”

Chief Operating Officer Hyundai Alabang, Inc.

Chief Political Affairs Officer Office of Rep. Franz Alvarez

Vice President Makati Development Corporation

RECTO, Gilbert A. “Gilbert” Owner OTCER Trading

TA-ALA, Dwight David A. “Dwight”

Vice President Makati Development Corporation

Assistant Vice President – Project Operations D.M. Consunji, Inc.

SANTOS, Lalaine S.M. “Lei”

VALLEZ, Christian R. “X”

Vice President – Sales and Operations Rosehall Management Consultants, Inc.

Chief Executive Officer Overmind Corp.

SIGA-AN, Sebastian C. “Steve”

VAÑO, Juanito B. Jr. “Boy”

REMOROZA, Redi Allan B. “Red”

HEAD – Transmission Planning Department National Grid Corp. of the Philippines

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STA. ANA, Emerson D.C. “Eson”

FVP & Head, Corporate & Retail Lending Group Bank of Makati

THE FAST TRAIN TO INCLUSIVE GROWTH

General Manager/COO Public Safety Mutual Benefit Fund, Inc.

Board of Trustee Public Safety Mutual Benefit Fund, Inc.

Characters

of Class 2017 Nila Alabastro Ms. Nila Alabastro or LCA as we call her, loves her work so much. She often brings her work to SBEP classes or skips class if she needs to finish something at the office. On the lighter side, she is a jolly person. There will never be a dull or boring conversation with her.”

—Dwight Ta-ala Marcy Alcantara Fun & lively is how I will describe Marcy. She’s the perfect seat mate to combat sleepiness in class. I am looking forward to visit Marcy in her office one day to check out the coffee beans she fondly collected while working in DTI. Congratulations Marcy in completing SBEP. Cheers! —Augusto Garcia Senni Basilio

Sensible. She has a good head above her shoulders. She is realistic, responsible and

reasonable.

Engaging. This is especially true and very observable during break time. We cannot just stop talking and talking and laughing.

Nurtural. A mother she is first and foremost. This is the only job that she doesn’t want to retire to.

Nice. She is to all of us. At first you’ll think she is somewhat a snob, but once you get to really know her, she is the opposite.

Inspired. Her greatest inspiration is her family. They are her inspiration and she is their inspiration!

—Lalaine Santos Gilbert Berba Gilbert Enrique Berba was my group mate for the forecasting in Baguio (in which we won!) and in the Project Analysis “The Alakhan Airport” case presented in Jakarta (in which Dr.

Dy rated 99.9%!). No wonder Gilbert holds a top position in Ayala Land Inc. because he is a very diligent, analytic and creative person, and most of all a proactive team player. Aside from those, he is also a witty and jolly person, no dull moment with him! May he soar to greater heights not only in his career but also in his personal life!

—Marcelina Alcantara Milan Bernardo Ms. Milan Rochelle Bernardo or fondly called, “Milan” is a nocturnal worker who loves the taste of a crispy bacon and latest array of fashion watches. She is a typical HR practitioner who scowls on bad manners and wrong conduct. She can speak her mind and write flawlessly.

—Capt. Steve Siga-an

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Characters of Class 2017 Emy Castro “It would take somebody like Wonder Woman who could play both roles of an Assurance Partner and a Human Capital Leader in one of the prestigious consulting firms in the country as these require both technical skills and social competence to exceptionally perform the job.

Emy is a perfect fit for the job! She is one of the most exuberant people I have met, brimming over with enthusiasm and positivity in my every encounter with her. Her witty remarks and easy smile brighten my every coffee break, which is also a welcome respite from my dealing with information overload.”

—Tantan Cornelio Pepi Casas I would describe Pepi as someone who can fit in and relate with anyone from all walks of life.

He can easily engage into a conversation with anyone, be it a fellow SBEP student, professor, or a new acquaintance from Jakarta. His fun and lively personality livens group discussions.

—Noel Castro Noel Castro Once you spend time talking to Noel about matters of business and commerce, you can immediately tell how immersed and connected he is with the pulse of distribution and channel management. It is not just the macro view of the business that he is familiar with. He seems to be quite hands on with the everyday operations of his company. I am happy to say that having spent time with Noel, I have taken away precious snippets of knowledge on running a channel management business and have applied this towards my own humble distribution company.

I am happy and proud to have had a classmate in my SBEP course such as Noel and hope to keep our communications over the coming years.

—Pepi Casas Tantan Cornelio There is something about Tantan that makes people gravitate towards her. Perhaps it is her ready smile that could easily lighten anyone’s day or her easy and gentle demeanor that makes each and every moment with her truly memorable. I remember the time when she got sick in Baguio and everyone was worried about her, and in April, when she was unable to join our Jakarta trip and everyone was saying how she was sorely missed. Tantan, thank you for being you beautiful inside and out. You and your lovely self completed the wonderful SBEP experience.

—Emy Castro Danny Cruzada Danny is reserved but at the same time passionate and committed to the tasks entrusted to him.. He speaks what is in his mind but

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cautious in his word. He analyzes the task at hand and executes them methodically.

—Henry Realon Poj Cruzado Poj is a no-nonsense guy. As class president, he lead and organized the class towards a successful golf and homecoming. He also frequents class meetings and extra curricular events ensuring active engagement from the class. Don’t be misled however by his hard exterior because beneath it all is a very warm and soft hearted person.

—Darwin Salipsip Renan David Sir Renan has a clear vision for our team and for MBPS, and he is ever-focused and driven to turn that vision into reality. He constantly challenges us to think out of the box in delivering what we promise to MBPS.

As our leader, we appreciate that he makes time to get to know all the members of our growing team. He is easy to get along with and also fun to be with, be it during or outside of work.

—Iñigo Garcia Joffrey Gacula Joffrey and I work for the same Company which is DMCI. He is under the construction arm and I’m in the power business. However, thanks to my other colleagues in DMCI, they were kind enough to share how they see Joffrey as a boss and as officemate. He is a serious kind of guy, strict as far as work is concerned because he wants things to be done perfectly as much as possible. He speaks his mind and is very keen to details. He is a leader who works hard to the point of being alcoholic este workaholic. :D Peace.

—Toni Gatdula

THE FAST TRAIN TO INCLUSIVE GROWTH

Gusty Garcia With a name like Gusty, you can be sure he is a certified F’boi (based on the lectures of Dr. Roque Carballo)..... just kidding! I met Gusty on my 1st day of class. He is confident and very amiable. Better befriend him now though before he gets full blown celebrity status. We can expect big things from this fella. Remember us as you fulfill your dreams and goals for the entire land.

—Darwin Salipsip Iñigo Garcia Iñigo Garcia—the early bird of the class. He has always been a finance guy but seeing him absorb and apply the learnings from SBEP to the workplace amazes me in many ways. I am excited to see more of those in the future and get more insights as we work more together.

—Renan David Justin Garcia Justin is a very committed and dynamic person.

Even his shift from the airline to power industry was just a breeze. He is the youngest in our SBEP 2017 class but very responsible and reliable especially in-group activities.

—Redi Remoroza Celine Han Celine was my seatmate at the PLDT Hall during the entire program, although she did not join any out-of-town sessions. She’s a mother of two boys, a wife of an expat here in the Philippines, and a math teacher back in South Korea. You have to admire her drive and perseverance to add yet another feather in her cap by completing the SBEP while playing all these roles in a foreign land, not to mention the language barrier. She’s unassuming and very pleasant to talk to because she always spoke with

Characters of Class 2017 a smile. The highlight of our talks during the short walks after class were the school activities of her sons, the culmination of her SBEP activities and her presentation of their group’s case on Business Ethics. It was a delight to listen to her. She intimated that she will be going back permanently to her homeland because of her son’s academic requirements but I hope that we will see her around sometime this year or the next. Perhaps, to pursue an MBE? —Bam Ira Bam Ira Bam is a confident woman with the ability to achieve greatness. With our time together for almost a year, I have achieved a lot of improvements under her sincere guidance. I was happy to be in SBEP with her.

—Celine Han Judith Lopez Ms. Judith is a model of a successful woman and leader. She looks out for the good in every person and she serves as an inspiration to us all. Despite her intelligence and great mind as she is very good in numbers, she has a humble, selfless, and cheerful heart. We are so blessed to have known Ms. Judith Lopez!

—Agnes Macob Agnes Macob Agnes is one of the most conscientious and studious participants of SBEP 2017. In our group, she displayed excellent qualities both of an inspiring leader and a genuinely committed team player. Beneath this apparently formal and unassuming lady is an amazing person -Agnes who is very sweet, kind , caring and a friend to all; Agnes who is funny in very simple ways, and Agnes who enjoys free things in life like singing (she has a wonderful voice which is a pleasant surprise) and the pricey ones as well such as shopping, shopping and more shopping (in Indonesia and Singapore!), just like any normal women.

Agnes, I truly admire you for being able to balance the delicate roles of a loving wife and a Mom and a successful and well respected officer in your organization. Wishing you all the best in your future endeavors. God Bless!!!

— Judith Lopez

Glenn Mendoza He’s one of the brightest student in SBEP 2017.

He’s always available to help his classmates especially if we have class projects and assignments. He’s also an inspiration because of his achievements at work.

—Gilbert Recto Max Quilat Sir Max is very approachable and very passionate about learning. He’s been a very reliable classmate and good friend since day 1 in SBEP. He’s also supportive to his classmates to achieve their goals whether in school or at work.

—Gilbert Recto Henry Realon Henry is a person who has a mild or gentle voice.

He looks timid, but not an easily frightened guy.

But talking about costing, price analysis, contract provisions, etc...he is clangorous...Henry is one of the best in our industry when it comes to Quantity Surveying.

—Danny Cruzada Gilbert Recto Gilbert Recto… His down to earth charisma makes him easy to approach even though he had gained so many post graduate studies already . A true character of an entrepreneur. Hope to see your business expanding. Bravo to you my friend!!!

—Maxwell Quilat Redi Remoroza Red is a proven industry expert backed by both his academic achievements and actual contributions. Even with his accomplishments, his passion for excellence and humility make him a person who continuously gets better. A very reliable individual, approachable leader, and a great mentor.

—Justin Garcia Jef Sahagun Jef Sahagun is the life of the class. Funny, articulate, and highly knowledgeable on issues and current events, he is afterall, the Chief Political Affairs Officer of Rep Franz Alavarez, 1st District of Palawan. As a teammate, Jef is reliable and caring. Not many people know that he is a drone enthusiast, able to balance work and leisure, as public servant and as Palawan’s number one fan. There is no dull moment, when Atty. Jef is around.

—Jean Pacheco

Darwin Salipsip It’s always alive and never a dull moment with Darwin. He is the “spark” to start lively discussions, engaging exchange of ideas and he makes sure no one is left unattended. He has the gift to make difficult and challenging group exercises and analyses into light but meaningful results. — Henry Realon Lalaine Santos Eleven months ago, I made the right decision to join the SBEP Program. I consider this as an investment as I gain knowledge and would help my career in the future. More than the knowledge, I have gained friends in the program. Lalaine is one of the close friends I have gained during the program. She’s very open to share thoughts and information she knows. During out-of-campus conferences, you can see her concern for others.

I will truly treasure the camaraderie that we have built during the program. —Rosenni Basilio Emerson Sta. Ana

Eson the Banker.

Eson is truly a team player. He knows how we (his group mates) desperately need him in defending our ethics paper. He may be out-ofthe country during the meeting sessions but he unselfishly provided his inputs in that paper.

Eson is truly the Banker. In that paper he provided his expertise and insights. He shared his experience which is the basis of our defense.

He presented and defended the paper with flying colors.

—Lalaine Sta. Ana Dwight Ta-ala Dwight is an inspiration to many, because his way of doing things is guided by principles. A man with few words but full of THOUGHT, and maintains the common touch to laugh with the laborers and the people in high places alike.

—Leonila Alabastro Christian Vallez Mr. X … The name is so mysterious to me but was amazed when I saw a handsome guy full of talent giving lecture on “The Art of Storytelling for Business Executives.” I salute to the two-time Palanca Awardee for Literature. Kudos!!!

—Maxwell Quilat

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THE FAST TRAIN TO INCLUSIVE GROWTH

Intensive Training on Bonds T

he SBEP organized a three whole-day “Intensive Training on Bonds� last July 19 to 21, 2017 at UA&P Case Room. It was attended by 10 executives from various private financial institutions and the government sector.

The Intensive Training on Bonds equipped the participants with a systematic and integrated learning on all bond and bondrelated products available in the market today. Computer based exercises were provided to the seminar participants to facilitate straightforward and practical learning.

Dr. Victor A. Abola, SBEP Director, also a Prominent Economist and Finance Expert, delivered the course for Days 1 & 2. The following topics were covered: Credit Analysis and Interest Rate Risk; Bond Types and Conventions; Basic Fixed Income Mathematics; Zero-Coupon Pricing and Yield Estimation; Fixed-Rate and Floating-Rate Bonds; Bond Yield Curves; Measures of Return on Investment; Interest Rate Sensitivity; Managing Portfolio Risk; Convexity; and Convertible Bonds.

For Day 3, Mr. Glenn Conrad Jao, CFA, CPA, Vice President and Head of the Financial Markets Division of the Philippine Savings Bank, delivered the following topics: Bond Portfolio Management Models; Holding Period Yield Immunization; Bond Portfolio Management Strategies; ROPs and Foreign Denominated Bonds.

The Intensive Training on Bonds is being offered by the SBEP bi-annually. It is designed for the knowledge and appreciation of Chief Financial Officers, Treasury Managers, Bond Traders, Bank Officers, Risk Officers, Investment Managers, Trust Managers, Certified Public Accountants, Lawyers, and Individual Investors. Interested participants may call the SBEP Secretariat at 6342820 / 6343095 / 6370912 loc. 222 or send an email to sbep@uap.asia. (by Alonica R. Salazar) SBEP MAGAZINE 2018

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Celebrating SBEP’s 43rd Anniversary the SBEP 2017 Golf Tournament and Homecoming Dinner

by Alonica R. Salazar

T

he Strategic Business Economics Program, UA&P’s flagship program for top executives, celebrated its 43rd anniversary featuring a Golf Tournament at the Wack Wack Golf and Country Club and a Homecoming Dinner at Oakwood Premier Joy-Nostalg Center last March 24, 2017. The success of both festivities could be attributed to the generosity and hard-work of Class 2017—the host batch.

The memorable and enjoyable day commenced with a Golf Tournament at the West Course of the Wack Wack Golf and Country Club. Dr. Victor Abola (SBEP Director) and Mr. Antonio L. Sayo (Chairman of the Technical Vocational Education and Training of the Philippine Chamber of Commerce and Industry) led the ceremonial tee-off at 8:00am. Old friendships were rekindled and new ones forged as the tournament breezed through the day. A total of 48 alumni, current participants, and guests competed in the golf tournament.

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Mr. Aldric Borlaza (Class 2016) came out as the Overall Champion and Mr. Anton Sayo (Class 2005) emerged as the Lowest Gross Champion. Division winners were Mr. Yul Catabran (Class 2005) for Class A; PCSupt. Roberto Aliggayu (Class 2016) for Class B; and Mr. Benedicto Siy (Class 1991) for Class C. Batch Champion was Class 2016 represented by Mr. Allan Pua, PCSupt.

Roberto Aliggayu, Mr. Aldric Borlaza, Mr. Jon Gatus, and Mr. Jun Cammayo.

For the Fun Holes, Mr. Romy Justiniano (guest) bagged Nearest to the Pin at Hole #14 – 2 yards & 10 inches. Mr. Anton Sayo (Class 2005) won the Most Accurate Drive at Hole #5 – 5.5 inches; and Mr. Aldric Borlaza (Class 2016) bagged the Longest Drive at Hole #10 – 263 yards.

Unluckily, nobody won the Hyundai Accent, which was the Hole-in-One prize.

Our golf tournament players were delighted to go home with a fantastic NIKE giveaway package comprised of a dry-fit

THE FAST TRAIN TO INCLUSIVE GROWTH

shirt, golf cap and a sleeve of balls. The SBEP and Class 2017 would like to thank the following sponsors for making the 2017 SBEP Golf Tournament a huge success and for contributing generously to the SBEP Endowment Fund: for Platinum Sponsors – Makati Development Corporation and Cathay Land Incorporated; for Gold Sponsors – National Grid Corporation of the Philippines, Agchem Construction and Development Corporation, Philippine Institute of Civil Engineers, GT Capital, MSERV, San Miguel Corporation, DMCI Project Developers, Inc., Joratech Corporation, and Manila Water Philippine Ventures, Inc.; for Silver Sponsors – DM Consunji, Inc., Seaoil Philippines, Inc., Ayala Land Premier, AMOSUP, PSMBFI, Alveo Land Corporation, Magsaysay Group of Companies, Philippine Veterans Bank, Steel Centre Philippines, Inc., Concrete Solution Builders and Supply, Loxon Philippines, Inc., Directories Philippines Corporation, Ecosolution,

DLM Konstrukt, Avida Land, P&A Grant Thornton, DMCI Mining Corporation, Healthy Family (Manila Water Total Solutions), Nutri-Asia, Tollways Management Corporation, Bank of Makati, Isla Lipana & Co. (PWC), Metropolis Construction, Inc., Gigatech Inc., FR Sevilla, Inc., Manulife, Land Bank of the Philippines, and Stradcom Corporation.

The festivity continued on at the Nostalg Ballroom of Oakwood Premier Joy-Nostalg Center Manila to celebrate the alumni homecoming. A total of 112 alumni, current batch, guests, and faculty graced the Homecoming Dinner. The entertaining program started with an invocation by Ms. Judith Lopez, Class 2017 secretary. The welcome address was given by Mr. Eduardo Cruzado, Jr. (Class 2017 president) and the masters of ceremonies for the night were Mr. Darwin Salipsip and Mr. Christian Vallez (both Class 2017 participants).

The highlight of the dinner was a spectacular performance by the SemiPro Rockeoke Band, who entertained all the guests with their unique rendition of 80’s music to modern pop. To top it all, a number of our enthusiastic alumni and Class 2017 performed rockeoke on stage to the delight of the guests! Mr. Mark Anthony Carpio (Class 2016), singer and songwriter, also serenaded everyone with his latest hit songs, ‘Kay Tagal’ and ‘Hiling’ - Pinoy Big Brother OST. The thrilling live performances and the fantastic raffle prizes glued the audience to their seats. Our lucky guests were happy to bring home the following major raffle prizes - 2 Golf Memberships for 1 year at South Forbes Golf City, Trip to Boracay for 2 from 2GO, 3D/2N stay in a Deluxe Room at The Bellevue Resort in Bohol, 49” Devant Full HD TV, dining certificates at Edsa Shangri-la Manila and Shangri-la at the Fort, gift certificates at Vietura Aesthetic Lifestyle, Sofitel, The

SPA gift certificates……….and still a number of exciting door prizes.

Mr. Ador A. Abrogena, Executive Vice President and Head of the Trust and Investments Group of Banco de Oro Unibank, Inc. and SBEP Alumnus Class 2003, delivered the inspirational message to the alumni and guests. The homecoming dinner formally concluded with our program director, Dr. Victor Abola’s closing remarks.

The SBEP would like to convey its sincerest thanks and appreciation to all the sponsors and donors for their generous contribution to the SBEP Endowment Fund that supports continuing executive education, professorial research and exchange, and publications for the alumni. Likewise, the program would like to acknowledge Class 2017 and the dependable SBEP staff for making the festivities of SBEP’s 43rd Anniversary an unforgettable and remarkable experience for all the alumni and guests!

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THE FAST TRAIN TO INCLUSIVE GROWTH

SBEP JAKARTA TRIP 2017

By Gilbert A. Recto, SBEP Class 2017

APRIL 19-24, 2017

Day 1 At 01:15 PM, alas, we have arrived at Soekarno Hatta

To be stuck in your tiring work-school routine can lead to actual burnout. This is the exact reason why I consider business travel as a massive perk of what I usually do. Aside from breaking my usual routine/habit that can eventually lead to boredom, it makes you enjoy everything a new place has to offer: culture, food and people. More importantly, it opens your mind to limitless possibilities by building a different perspective, business or personal, from the ideas of people from different culture.

SBEP Batch of 2017 had an opportunity to travel outside the country and expose ourselves to the colorful country of Indonesia.

On April 19 of last year, our batch went to Jakarta Indonesia for a Trade Mission with the ultimate purpose of creating a bridge between Indonesia and Philippines in terms of business. The event was meant to gather business owners from both countries to meet and greet to build a relationship that may potentially lead to future partnerships in business. It was quite an opportunity because, aside from discovering the rich culture of Indonesia, this trip had made us learn from the testimonies of Indonesia’s finest businessmen giving us all a fresh perspective about the industry.

Our journey started at NAIA Terminal 3 when we checked in at exactly 04:40 AM. Before arriving at Soekarno Hatta International Airport, we had a connecting flight first in Singapore Changi Airport. Voted as World’s Best Airport for five consecutive years, awesome is definitely an understatement when describing Changi Airport for there are a lot of things you can do in this place while waiting for your flight. However, not my feeling of amusement can beat the feeling of being tired waiting for our flight to Indonesia during that time. Our excitement for the actual trade event was impeded with all the waiting. Often they say that the reward comes sweetest with all the waiting so we are still looking forward to arriving at Indonesia soon.

International Airport. The excitement for the actual event is finally starting to really build up. We were fetched by the minibus service that was set up by our travel agency. Our travel time from the airport to the hotel took almost 2 hours. I enjoyed traveling from the airport to hotel because of the view. Different from how major highway looks like here in Manila, Indonesia’s major highways are surrounded not by high towers and buildings but by trees of different kind rather. It was really a break from the polluted environment of Manila. On the bus, Starbucks treats were served to everyone as our “merienda”.

When we arrived at Pullman Thamrin Jakarta Hotel, we were greeted by the very courteous staff of the hotel and were given complimentary drinks. At this point, everyone is looking forward to know their room assignments and to just check in and rest. Before even checking in, we were assigned room buddies. I was partnered with Glenn Mendoza who is the VP of Seaoil. A sense of relief was experienced the first time I laid eyes on our room. The bed looked tranquil with its clean white linen urging me to dive down and rest for the entire day, rejuvenate from the very tiring trip. I bet Glenn felt the same way. We were able to lounge first before we went to dinner. But rest was not an option for me because I wanted to make sure I am ready to present for the event. After few minutes of rest, I took my laptop out and revisited my presentation points until we were asked to get ready for dinner.

Originally planned to be set outside the hotel, dinner just ensued at the hotel restaurant due to time constraint. I can tell you that food was definitely everywhere the whole duration of our trip.

First three days of this trip, breakfast, lunch and dinner were served in buffet so you can imagine how much food was served to make sure everyone was well-fed. I even felt like I gained so many pounds after the trip.

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Jakarta Trip 2017

Right after dinner, we were asked to gather again for the groupings for the presentation of the Project Analysis and Business Ethics. This was our last activity for the day before we finally dozed off.

Day 2 Breakfast was served at 06:00 AM. Much like other normal human beings, keeping ourselves up at this time of the day has proven itself to be an extreme challenge. We wanted more sleep from previous day’s trip but the entire class know that today’s classroom discussion is very important to be missed.

Eager to listen, everyone headed out to The Gallery for the Economics of HR discussion with Dr. Abola located at the second floor of the hotel. As the team was properly dressed with their smart-casual ensemble for the day, we were all fighting the urge to sleep after that hearty and definitely huge breakfast serving.

Despite this challenge, our enthusiasm to learn new philosophies from the most respected Dr. Abola remained on fire.

The discussion revolved around the direct correlation between markets and contract and how the latter can be expected to be fair if the former works. In addition to this, the talk also touched on the effects of imbalance in power and when should government intervene when this particular event occurs. Dr. Abola also tackled about how to correct imbalances of power on contracting. The discussion lasted for six hours with breaks and lunch schedules in between.

At 03:00 PM, we were all busy again on group works on project analysis and business ethics. Before we even started the trip, I have already completed my presentation and business ethics in the Philippines so sharing key points during our group discussion was easy pea. Our second day was again wrapped up with another buffet dinner.

Day 3 One of the many activities lined up for this day was the class presentation of both Project Analysis and Business Ethics.

Located at The Gallery again, everyone was given a chance to present the case assigned to them. Having read all the cases and provided the same personal insights before we even get to Indonesia, hearing different inputs from other teams gave a new 28

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sense of perspective from what I already know. I always enjoy learning from people’s stories as the experience widens my understanding of things.

So much for learning from each other’s ideas, the main highlight of the day was the Panel Discussion and Open Forum with DTI representatives of Indonesia and different business owners. Before this happened, a welcome remark and briefing of Philippine Economy was delivered by UA&P just to give our foreign friends a brief idea on how the industry works in our country. Learning continued after that when we started hearing more about Indonesia’s business process. What was striking for me was to know that when you start a business in Indonesia, it is a requirement that the HR team would come to Indonesia as well. This is a country policy that needs to be followed every single time a business gets conceptualized. To learn that Indonesia is a large Muslim country, their Halal policy is well-regarded as well in every aspect of business. We learned that if products don’t meet the standards of Halal, they can be forcibly pulled out which can have a direct negative effect in your supposed business venture: a realization that starting a food business venture in Indonesia proves to be more challenging than starting any other business.

A quick break was scheduled after the panel discussion.

Business Network Meeting happened after the break giving everyone an equal opportunity to mingle with Indonesian business owners for future partnership.

Day 4 This day was definitely meant for travel. The first activity done after breakfast was the Oishi plant visit. We learned that Oishi was one of the most successful multinational companies in Indonesia owned by a Filipino. We were able to experience first-hand their operation and saw how their products are being packaged. A quick remark was done by their country head.

Speaking as someone who enjoys treats a lot, it was exciting to receive Oishi products with flavors only available in Indonesia.

Our tour was headed Mr. Surja. After the plant visit, we travelled our way to Taman Mini Indonesia Miniature Park. It was understandable that we might not have the luxury to visit the entirety of Indonesia with this planned trip so Taman Mini Indonesia Miniature Park helped us see the whole of the country in a miniature park.

At Hotel Santika, we had our lunch in Krakatau Restaurant.

Once again, the trip organizers made sure that everyone was wellfed with a buffet lunch serving.

The TMII tour continued after lunch but our visit to Pacific

Jakarta Trip 2017

Place was also a fun experience. Pacific Place is a high end mall in Jakarta filled with shops of the most luxurious brands both local and international. I remember seeing a big Hard Rock café with inside and outside seating in this mall. The entire place was packed with a variety of great food and restaurants. The shops inside ranges from casual to really luxurious brands.

Right after our stroll, we departed Pacific place to head to Buzz Restaurant in Alila Hotel for our…yes, you guessed it right…a buffet dinner. This is the first time in this trip that we get to experience authentic Indonesian cuisine. I learned that the best Indonesian food tastes really spicy. I may not remember all their names, but it was definitely a delightful experience.

Day 5 There is no better way spending Sundays anywhere in the world other than thanking the Lord for this wonderful experience.

We attended a mass at St Theresa Catholic Church. It was interesting to know that the Bible in their native language is called “Puji Syukur”. The church was very wild and not as glamorized as most of our churches in our country would usually look. It was all painted in white and what really caught my attention was the projector that was set up at the top ceiling of the altar in its perfect curvature.

After the mass, our cultural tour continued when we visited the National Museum & National Monument of Indonesia.

Truly, the National Monument was indeed a work of art. It was a really tall tower found in the center of Merdeka Square in Jakarta.

The museum, popularly known as the Elephant Building, houses different historical and ethnological artifacts that will help you appreciate the Indonesian culture more: mostly stone statues and ancient Asian ceramics.

We headed to Morrissey Hotel after our museum tour to have out lunch at Home Café: A Western and Indonesia Coffee and Tea House. Their menu serves a wide variety of burger and sandwiches but their mains are mostly Indonesian cuisines. I remembered ordering this Balinese Chicken cooked in Salted Egg. The chicken tasted like it was marinated in tomato juice and it was served with jasmine rice just how every Filipino wanted their chicken served.

Lunch ended at around 2:00 PM and we drove to Thamrin City: a complex which houses a shopping mall and apartment towers. This is a very nice place for shopping souvenirs or just plain personal shopping because the place is not crowded. During our visit, not a lot of people are in this shopping area considering how affordable the merchandise was. You’ll get really hungry after doing all the shopping but the area also did not fall short with the

number of food places that can offer services after the whole day of spending. It was at Thamrin when we were also reminded that the brand Polo is being manufactured in Indonesia making their products a lot cheaper compared to buying it anywhere else. With that in mind, I started hoarding for different designs and even until now, when my SBEP classmates see me wearing them they get to be reminded of our Indonesia trip. I got to shop with Marcy of DTI Region 4A, Eson of Bank of Makati and Max of Hyundai Alabang who became my consistent buddy for the entire trip.

And just when you thought Pacific Place and Thamrin City already completed your shopping experience, we got to visit Grand Indonesia. The name of the place won’t do it justice because this place wasn’t just grand but it was really luxurious. It proved my point that Indonesian loves shopping as much as we Filipinos do. Grand Indonesia is not just a shopping center but it also houses a residential area, office tower and fourteen (14) hotels.

Yes, you heard it right, fourteen hotels in one grand complex!

Now, feel free to imagine how grand “Grand” Indonesia really was. The complex in itself and its perfect architecture will pass as a legit and true work of art. Grand was definitely the best way to cap off our Indonesia trip.

Day 6 Waking up at our last day in Indonesia, we all realized how surreal the experience was. Not everyone is given an opportunity to travel outside the country and experience a widely celebrated culture and learn about our chosen industry all at the same time.

We did not want the trip to end obviously but as every great chapter in any book, a closure was meant to happen so everyone can eventually move forward.

Our last breakfast was served at 06:00 AM at Hotel Restaurant. Everyone took the time to really just talk to each other about how fun and exciting that experience was. All the more, walking out of that country filled with additional wisdom in business was one of the main goals of the trip that was overly met.

We were all happy and glad.

As bittersweet as it may sound, we assembled for the last time at the hotel lobby at 09:30 with all our bags packed and ready to bid farewell to this amazing country. We departed out hotel at 10:00 and drove straight to Soekarno Hatta International Airport before we boarded out Singapore connecting flight at 02:10 PM. We arrived at Manila at exactly 11:00 PM with all the connecting travel. We all landed safe and filled with joy because of how humbling this whole experience was.

The six-day trip was not enough to fully experience Indonesia in its entirety but we got to see and experience the heart of the country even in our very packed schedule and with that we are truly grateful. To be away from our families for six days was not an easy experience but the memories built in that country, the bond that was formed and strengthened our relationship with our classmates and meeting new friends alike, all the trips and rides just to get to our next dinner destinations and learning from each and everyone’s stories just made the whole trip definitely worth it.

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SBEP Alumni Association As a member of the SBEP Alumni Association, you are entitled to the following privileges: 1.

2.

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20% discount on all SBEP Financial Seminars Copy of the SBEP Annual Alumni Magazine (to be sent by mail) Unlimited access to the UA&P Graduate School Library SBEP Alumni ID card (to be sent by mail) Copy of the Market Call (to be sent by mail every quarter) – a publication of First Metro Investment Corporation (FMIC) and UA&P Capital Markets Research Group. This highly informative newsletter gives you the current standing and a thorough analysis of the workings of our macroeconomy and the capital markets.

For those interested to join, please submit the following requirements:

– Accomplished Alumni Data Form

– One (1) piece 1x1 picture (preferably white background)

– Annual membership fee of PhP1,500.00 (check should be payable to the UA&P-SBEP Alumni Association, Inc.) For any SBEP Alumni concerns, please call our office at 6370912 to 28 loc. 222, 6343095 or email us at sbep@uap.asia 30

THE FAST TRAIN TO INCLUSIVE GROWTH

Strategic Business Economics Program Your Executive Edge!

SBEP Kapihan

The SBEP Alumni Office is organizing a monthly Kapihan and alumni get-together at UA&P. Since April 2017, the following Kapihan sessions have been realized: April 20 – “Update on the Philippine Economy”

by Dr. Bernardo M. Villegas May 17 - “The Next 50 Years of the Philippine Economy and Governance” by Dr. Jesus P. Estanislao and Dr. Bernardo M. Villegas May 31 - “A Macroeconomic Briefing and Outlook on the Construction and Real Estate Industries” by Dr. Victor A. Abola and Dr. Bernardo M. Villegas August 30 - “Financial Inclusion and Credit Scores”

by Mr. Danilo J. Mojica, II October 27 - “Dutertenomics: After Year 1”

by Mr. Ronilo M. Balbieran December 20 - “Tourism Investment Opportunities in the Next Five Years” by Dr. Maria Cherry Lyn S. Rodolfo January 31, 2018 – “The Effects of the TRAIN Law”

by Mr. Leandro Tomas David D.L. Tan The objective of the Kapihan is three-fold: 1. To bring back the SBEP alumni to UA&P • All alumni from Class 1975 to 2017 are encouraged to attend the Kapihan. This will be a monthly breakfast reunion for the SBEP alumni and their guests.

2. To get first-hand updates on what’s happening in the economy and the business environment • An invited guest speaker will start the Kapihan with an informal / short briefing on pressing economic issues and their impact on the business sector. The attendees can freely join the interactive discussion while having breakfast and coffee.

• UA&P economists, professors, alumni, and distinguished guests from the government and private sector will be invited as speakers.

3. To provide a venue for networking with fellow senior executives on a monthly basis.

• The SBEP boasts of its alumni (numbering 1,730+) from hundreds of companies, representing not only top corporations, but also medium-sized, dynamic enterprises, professionals (lawyers, doctors, engineers, etc.), and government officials including the police and military. The diversity and level of background of the alumni contribute to a truly enriching exchange of theory, experience, and wisdom.

The invitation to the next Kapihan session will be sent to all alumni through email. The SBEP alumni may bring a guest(s) to the Kapihan. Registration is free. The only cost to the attendee is breakfast.

For more inquiries on our monthly Kapihan, please get in touch with Ms. Alonica Salazar, marketing and alumni affairs manager, or with Ms. Lea Riñon, marketing and alumni affairs coordinator, by email at sbep@uap.asia or by phone at 634-2820 / 634-3095 / 637-0912 loc. 222.

It’s time to be updated and re-connected! Be part of the SBEP-Alumni Loop! (by Alonica R. Salazar) SBEP MAGAZINE 2018

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